Proposed Rule2026-06173
Single Family Housing Guaranteed Loan Program-Income Producing Accessory Dwelling Unit (ADU) Provisions
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Published
March 31, 2026
Issuing agencies
Agriculture DepartmentRural Housing Service
Abstract
The Rural Housing Service (RHS or the Agency), an agency of the Rural Development mission area within the United States Department of Agriculture (USDA), is issuing a proposed rule to amend the current Single Family Housing Guaranteed Loan Program (SFHGLP) regulation. These proposed changes are intended to allow the Agency to finance a single family home with a single or multiple income producing Accessory Dwelling Units (ADU). Additionally, we propose to clarify that borrowers can finance properties with features designed to accommodate home-based operations with non-commercial real estate features. The plain language summary of the proposal is available on Regulations.gov in the docket for rulemaking.
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<title>Federal Register, Volume 91 Issue 61 (Tuesday, March 31, 2026)</title>
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[Federal Register Volume 91, Number 61 (Tuesday, March 31, 2026)]
[Proposed Rules]
[Pages 15914-15917]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06173]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 91, No. 61 / Tuesday, March 31, 2026 /
Proposed Rules
[[Page 15914]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3555
[Docket No. RHS-26-SFH-0100]
RIN 0575-AD45
Single Family Housing Guaranteed Loan Program--Income Producing
Accessory Dwelling Unit (ADU) Provisions
AGENCY: Rural Housing Service, Agriculture Department (USDA).
ACTION: Proposed rule.
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SUMMARY: The Rural Housing Service (RHS or the Agency), an agency of
the Rural Development mission area within the United States Department
of Agriculture (USDA), is issuing a proposed rule to amend the current
Single Family Housing Guaranteed Loan Program (SFHGLP) regulation.
These proposed changes are intended to allow the Agency to finance a
single family home with a single or multiple income producing Accessory
Dwelling Units (ADU). Additionally, we propose to clarify that
borrowers can finance properties with features designed to accommodate
home-based operations with non-commercial real estate features. The
plain language summary of the proposal is available on <a href="http://Regulations.gov">Regulations.gov</a>
in the docket for rulemaking.
DATES: Comments must be submitted on or before June 1, 2026.
ADDRESSES: Comments may be submitted by going to the Federal
eRulemaking Portal, <a href="http://regulations.gov/">regulations.gov/</a>. In the ``Search for dockets and
documents on agency actions'' box, enter the docket number, RHS-26-SFH-
0100, and click ``Search'' button. From the search results: click on or
locate the document title: ``Single Family Housing Guaranteed Loan
Program--Income Producing Accessory Dwelling Unit (ADU) Provisions''
and select the ``Comment'' button. Before inputting comments,
commenters may review the ``Commenter's Checklist'' (optional). To
submit a comment: Insert comments under the ``Comment'' title, click
``Browse'' to attach files (if available), input email address, select
box to opt to receive email confirmation of submission and tracking
(optional), select the box ``I'm not a robot,'' and then select
``Submit Comment''. Information on using <a href="http://Regulations.gov">Regulations.gov</a>, including
instructions for accessing documents, submitting comments, and viewing
the docket after the close of the comment period, is available under
the site's ``FAQ'' link. All comments will be available for public
inspection online at the Federal eRulemaking Portal (regulations.gov).
Other Information: Additional information about Rural Development
and its programs is available on the internet at <a href="https://www.rd.usda.gov">https://www.rd.usda.gov</a>.
FOR FURTHER INFORMATION CONTACT: Stephanie Freeman, Finance and Loan
Analyst, Single Family Housing Guaranteed Loan Division, Rural
Development, U.S. Department of Agriculture, STOP 0784, Room 2250,
South Agriculture Building, 1400 Independence Avenue SW, Washington, DC
20250-0784. Telephone: (314) 457-6413; or email:
<a href="/cdn-cgi/l/email-protection#5c2f28392c343d323539723a2e3939313d321c292f383d723b332a"><span class="__cf_email__" data-cfemail="bbc8cfdecbd3dad5d2de95ddc9deded6dad5fbcec8dfda95dcd4cd">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Abbreviations
ADU Accessory Dwelling Unit
CFR Code of Federal Regulations
FNMA Fannie Mae
FHA Federal Housing Administration
FR Federal Register
FHLMC Freddie Mac
HUD Department of Housing and Urban Development
RHS Rural Housing Service
Sec. Section
SEQ. Sequentes
SFHGLP Single Family Housing Guaranteed Loan Program
U.S.C. United States Code
USPAP Uniform Standards of Professional Appraisal Practice
VA The Department of Veterans Affairs
I. Statutory Authority
The SFHGLP is authorized by Section 502(h) of the Housing Act of
1949 (42 U.S.C. 1472(h)), as amended, and implemented by 7 CFR part
3555.
II. Background
The RHS offers an array of programs to develop and enhance housing
and critical community infrastructure in rural areas. The Agency offers
loans, grants, and loan guarantees for single and multi-family housing,
childcare centers, emergency services facilities, hospitals, libraries,
nursing homes, schools, and housing for agricultural workers, among
other essential projects. Additionally, the RHS collaborates with non-
profits, tribal governments, and state/federal agencies to offer
technical assistance and supplementary financing to local communities.
Under the authority of the Housing Act of 1949, (42 U.S.C. 1471 et
seq.), as amended, the SFHGLP makes loan guarantees to provide low and
moderate income persons in rural areas an opportunity to own decent,
safe, and sanitary dwellings and related facilities. Approved lenders
make the initial eligibility determinations, and the Agency reviews
those determinations to make a final eligibility decision.
In an effort to boost homeownership, the federal government has
introduced new initiatives that provide prospective buyers with greater
flexibilities for financing properties with ADUs. There is a growing
demand for affordable housing, coupled with a limited amount of land
available for development in many rural communities, which has made it
necessary to consider the financing of properties with an ADU. ADUs
offer numerous community benefits, including increasing overall housing
supply and providing affordable living options for low- and moderate-
income families. It can be created within or added to the primary
dwelling through the conversion of existing space, such as an attic or
basement; constructed as separate structures over an existing accessory
building, such as a garage; or built independently from the primary
residential structure as a residential unit.
Homeownership options are limited for many Americans. The Agency
has recognized that ADUs can offer a variety of benefits, including
increasing a community's housing supply by adding or introducing new
and innovative housing typologies of smaller scale, providing a more
affordable housing option for many low- and moderate-income residents.
It provides a means to generate additional income for borrowers. These
additional benefits support the goal of increasing the stock
[[Page 15915]]
of affordable housing while creating innovative solutions and expanding
opportunities for homeownership stability.
III. Discussion of the Proposed Rule
A. Agency Definitions of an Accessory Dwelling Unit (ADU) and Living
Unit
ADUs, also known as in-law apartments, casitas, carriage houses,
second units, or granny flats, became a common feature in single-family
homes in the early 1900s. The post-WWII housing boom and
suburbanization further increased demand for these supplementary living
spaces. Regardless of the terminology used, ADUs are self-contained
living spaces with kitchens or kitchenettes and bathrooms, or
comparable space, in an open floor plan that are built on the same lot
as a single-family home. These separate living quarters can be attached
to, or detached from, the primary dwelling. Today, they are widely
recognized as a valuable housing option in communities across the
country.
The Agency currently considers an ADU as a habitable living unit,
within or detached from a single-family dwelling, which together with
the single-family dwelling constitutes a single interest in real
estate. Neither the definition of an ADU or a living unit is currently
defined in program regulations. The Agency is proposing to formally
codify the definition of an ADU in 7 CFR 3555.10 as a habitable living
unit, either within or detached from a single family dwelling. The ADU
must be a private space that is subordinate in size, has means of
separate ingress and egress that meets HUD's minimum requirements for a
living unit, and together with the single-family dwelling constitutes a
single interest in real estate. Furthermore, the Agency proposes to add
the definition of a living unit in 7 CFR 3555.10 to provide the minimum
requirements for a unit to be considered a living unit for this
purpose. The other major federal housing agencies, such as the Federal
Housing Administration (FHA) and the Department of Veterans Affairs
(VA), as well as government-sponsored enterprises (GSE) Fannie Mae
(FNMA) and Freddie Mac (FHLMC), use comparable definitions.
B. Accessory Dwelling Unit Changes
Under 7 CFR 3555.102(b), the purchase or improvement of land or
buildings that are typically used principally for income-producing
purposes is prohibited. Additionally, 7 CFR 3555.201(b)(2) states that
a site must not include income-producing land or buildings to be used
principally for income-producing purposes. A qualified property must be
predominantly residential in use, character, and appearance. The Agency
currently prohibits financing a property that includes an income-
producing building, such as a freestanding ADU, to be used for income-
generating purposes. However, ADUs on the subject property that do not
produce income, but are used to support multigenerational households,
are consistent with program requirements. In an effort to continue
delivering meaningful solutions that increase the affordable housing
supply and promote homeowner financial stability, the Agency proposes
to amend 7 CFR 3555.102(b) and 3555.201(b)(2), to clarify that
properties that include, or will include, a single or multiple ADUs
constitute an eligible loan purpose.
C. Financing Homes With Home-Based Business Operations
The Agency's current program regulations do not provide guidance on
whether properties with features allowing for home-based operations
such as childcare, product sales, or craft production, are accepted or
excluded. The presence of such features may provide an opportunity for
an additional income stream for the borrower, however the property
remains a residential home, consistent with the intent of the SFHGLP.
Therefore, the Agency is proposing to amend 7 CFR 3555.102(c), to
provide clarity regarding features designed to accommodate home-based
business operations, making it eligible for the SFHGLP.
IV. Request for Comment
Stakeholder input is vital to ensure the proposed changes in the
proposed rule would support the Agency's mission, while ensuring that
new regulations and policies are reasonable and do not overly burden
the Agency's lenders and their customers. Comments must be submitted on
or before June 1, 2026 and may be submitted electronically by going to
the Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Details on
how to submit comments to the Federal eRulemaking Portal are in the
ADDRESSES section of this proposed rule.
V. Summary of Changes
RHS is proposing to make the following changes to 7 CFR part 3555:
(1) Add the definitions of an Accessory Dwelling Unit (ADU) and a
Living Unit in 7 CFR 3555.10 which would clarify the understanding of
these terms.
(2) Update section 7 CFR 3555.102(b) to allow the Agency to issue a
guarantee if loan funds are used for a single or multiple income
producing ADUs.
(3) Update section 7 CFR 3555.102(c) to allow the Agency to issue a
guarantee if loan funds are used to finance a property which
accommodates a home-based operation.
(4) Update section 7 CFR 3555.201(b)(2) to clarify that borrowers
are allowed to finance sites that include an income producing ADU.
VI. Executive Orders and Statutory Regulatory Review Requirements
Executive Order 12372, Intergovernmental Review of Federal Programs
This program is not subject to the requirements of Executive Order
12372, ``Intergovernmental Review of Federal Programs,'' as implemented
under USDA's regulations.
Executive Order 12866, Regulatory Planning and Review
This rule has been determined to be significant under section 3(f)
of Executive Order 12866 and was reviewed by the Office of Management
and Budget. In accordance with Executive Order 12866, an Economic
Impact Analysis was completed, outlining the costs and benefits of
implementing this program in rural America. The complete analysis is
available from <a href="http://Regulations.gov">Regulations.gov</a> by searching for the Docket number [RHS-
26-SFH-0100].
Executive Order 12988, Civil Justice Reform
This proposed rulemaking has been reviewed under Executive Order
12988. In accordance with this rule: (1) unless otherwise specifically
provided, all State and local laws that conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule except
as specifically prescribed in the rule; and (3) administrative
proceedings of the National Appeals Division of the Department of
Agriculture (7 CFR part 11) must be exhausted before bringing suit in
court that challenges action taken under this rule.
Executive Order 13132, Federalism
The policies contained in this proposed rulemaking do not have any
substantial direct effect on states, on the relationship between the
national government and states, or on the distribution of power and
responsibilities among the various levels of government. This proposed
rule does not impose substantial direct
[[Page 15916]]
compliance costs on state and local governments. Therefore,
consultation with the states is not required.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This proposed rule has been reviewed in accordance with the
requirements of Executive Order 13175, ``Consultation and Coordination
with Indian Tribal Governments.'' Executive Order 13175 requires
Federal agencies to consult and coordinate with tribes on a government-
to-government basis on policies that have tribal implications,
including regulations, legislative comments or proposed legislation,
and other policy statements or actions that have substantial direct
effects on one or more Indian tribes, on the relationship between the
Federal Government and Indian tribes or on the distribution of power
and responsibilities between the Federal Government and Indian tribes.
Consultation is also required for any regulation that preempts tribal
law or that imposes substantial direct compliance costs on Indian
tribal governments and that is not required by statute. The Agency has
determined that this proposed rule does not, to our knowledge, have
tribal implications that require formal tribal consultation under
Executive Order 13175. If a Tribe requests consultation, the Rural
Housing Service will work with the Office of Tribal Relations to ensure
meaningful consultation is provided where changes, additions and
modifications identified herein are not expressly mandated by Congress.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for federal agencies to assess the
effect of their regulatory actions on state, local, and tribal
governments, and the private sector. Under section 202 of the UMRA, the
Agency generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``federal
mandates'' that may result in expenditures to state, local, or tribal
governments, in the aggregate, or to the private sector, of $100
million, or more in any one year. When such a statement is needed for a
rule, section 205 of the UMRA generally requires the Agency to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective, or least burdensome alternative
that achieves the objectives of the rule.
This proposed rule contains no federal mandates (under the
regulatory provisions of Title II of the UMRA) for state, local, and
tribal governments, or the private sector. Therefore, this proposed
rule is not subject to the requirements of sections 202 and 205 of the
UMRA.
National Environmental Policy Act
In accordance with the National Environmental Policy Act of 1969,
Public Law 91-190, this proposed rule has been reviewed in accordance
with 7 CFR part 1b (``National Environmental Policy Act''). The Agency
has determined that (i) this action meets the criteria established in 7
CFR 1b.4(c)(31); (ii) no extraordinary circumstances exist; and (iii)
the action is not ``connected'' to other actions with potentially
significant impacts, is not considered a ``cumulative action''.
Therefore, the Agency has determined that the action does not have a
significant effect on the human environment, and therefore neither an
Environmental Assessment nor an Environmental Impact Statement is
required.
Regulatory Flexibility Act
This proposed rule has been reviewed with regard to the
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The
undersigned has determined and certified by signature on this document
that this rule will not have a significant economic impact on a
substantial number of small entities since this rulemaking action does
not involve a new or expanded program nor does it require any more
action on the part of a small business than required of a large entity.
Civil Rights Impact Analysis
RD has reviewed this proposed rule in accordance with USDA
Regulation 4300-4, Civil Rights Impact Analysis,'' to identify any
major civil rights impacts the rule might have on program participants
on the basis of age, race, color, national origin, sex, disability,
political beliefs, marital status, familial status, parental status,
veteran status, religion, reprisal and/or resulting from all or a part
of an individual's income being derived from any public assistance
program. This proposed rule is within a Guarantee-based program.
Guarantees are not covered under Title VI of the Civil Rights Act of
1964, Section 504 of the Rehabilitation Act of 1973, and Title IX of
the Education Amendments Act of 1972, as amended, when the Federal
assistance does not include insurance or interest credit loans. Lenders
must comply with other applicable Federal laws, including Equal
Employment Opportunities, the Equal Credit Opportunity Act, the Fair
Housing Act, and the Civil Rights Act of 1964. Guaranteed loans that
involve the construction of or addition to facilities that accommodate
the public must comply with the Architectural Barriers Act
Accessibility Standard. The borrower and lender are responsible for
ensuring compliance with these requirements.
Assistance Listing Number
The program affected by this proposed rule is listed in the
Assistance Listing (AL) Number 10.410, Very Low to Moderate Income
Housing Loans (Section 502 Rural Housing Loans).
Paperwork Reduction Act
This proposed rule contains no new reporting or recordkeeping
burdens under OMB control number 0575-0179 that would require approval
under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
E-Government Act Compliance
Rural Development is committed to the E-Government Act, which
requires Government agencies in general to provide the public the
option of submitting information or transacting business electronically
to the maximum extent possible and to promote the use of the internet
and other information technologies to provide increased opportunities
for citizen access to Government information and services, and for
other purposes.
Non-Discrimination Policy
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Agencies, offices, and employees, and institutions participating in or
administering USDA programs are prohibited from discriminating based on
race, color, national origin, religion, sex, disability, age, marital
status, family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or funded by USDA
(not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large print,
audiotape, American Sign Language, etc.) should contact the State or
local Agency that administers the program or contact USDA through the
Telecommunications Relay Service at 711 (voice and TTY). Additionally,
program information may be made
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available in languages other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at How to
File a Program Discrimination Complaint and at any USDA office or write
a letter addressed to USDA and provide in the letter all of the
information requested in the form. To request a copy of the complaint
form, call (866) 632-9992. Submit your completed form or letter to USDA
by: (1) mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Mail Stop
9410, Washington, DC 20250-9410; (2) fax: (202) 690-7442; or (3) email:
<a href="/cdn-cgi/l/email-protection#473735282035262a692e2933262c22073234232669202831"><span class="__cf_email__" data-cfemail="fc8c8e939b8e9d91d29592889d9799bc898f989dd29b938a">[email protected]</span></a>.
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 3555
Administrative practice and procedure, Business and industry,
Conflicts of interest, Credit, Environmental impact statements, Fair
housing, Flood insurance, Grant programs--housing and community
development, Home improvement, Housing, Loan programs--housing and
community development, Low and moderate income housing, Manufactured
homes, Mortgage insurance, Mortgages, Reporting and recordkeeping
requirements, Rural areas.
For the reasons set forth in the preamble, chapter XXXV of the
title 7, Code of Federal Regulations is proposed to be amended as
follows:
PART 3555--GUARANTEED RURAL HOUSING PROGRAM
0
1. The authority citation for Part 3555 continues to read as follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1471 et seq.
Subpart A--General
0
2. Amend Sec. 3555.10 by adding the definitions of an Accessory
Dwelling Unit and a Living Unit to read as follows:
Sec. 3555.10 Definitions and abbreviations.
* * * * *
Accessory Dwelling Unit. A habitable living unit, within or
detached from a single family dwelling, that is a private space that is
subordinate in size, has means of separate ingress and egress that
meets the minimum requirements for a living unit, which together
constitutes a single interest in real estate.
Living Unit. To constitute a living unit, the unit must contain a
continuous and sufficient supply of safe and potable water, sanitary
facilities and a safe method of sewage disposal, heating adequate for
healthful and comfortable living conditions, domestic hot water,
electricity adequate for lighting and mechanical equipment, and kitchen
facilities adequate for the preparation and cooking of food. The unit
must contain at least one bathroom, or similar space, which includes a
water closet, lavatory, and bathtub or shower; and kitchen or
kitchenette facilities which include a sink with potable running water
and a stove utility hookup, or similar cooking instrument.
* * * * *
Subpart C--Loan Requirements
0
3. Amend Sec. 3555.102 by revising paragraph (b) and (c) to read as
follows:
Sec. 3555.102 Loan Restrictions.
* * * * *
(a) * * *
(b) Income producing land or buildings. Purchase or improvement of
land or buildings that are typically used principally for income-
producing purposes, except this restriction shall not apply where loan
funds are to be used for the financing of an otherwise qualifying
property that contains or will contain a single or multiple accessory
dwelling units;
(c) Business or income-producing enterprise. Purchase or the
construction of buildings which are largely or in part specifically
designed to accommodate a business or income-producing enterprise. This
restriction shall not apply where loan funds are to be used for the
financing of an otherwise qualifying property with design features that
accommodate a home-based business or businesses; such as childcare,
product sales, or craft production; that do not require specific
commercial real estate features;
* * * * *
Subpart E--Underwriting the Property
0
4. Amend Sec. 3555.201 by revising paragraph (b)(2) to read as
follows:
Sec. 3555.201 Site Requirements.
* * * * *
(b) * * *
(1) * * *
(2) The site must not include income-producing land or buildings to
be used principally for income-producing purposes, except this
limitation shall not apply where the site is otherwise qualified and
contains or will contain a single or multiple accessory dwelling units.
Vacant land without eligible residential improvements, or property used
primarily for agriculture, farming or commercial enterprise is
ineligible for a loan guarantee.
* * * * *
Anthony Priest,
Chief of Staff, Rural Housing Service.
[FR Doc. 2026-06173 Filed 3-30-26; 8:45 am]
BILLING CODE 3410-XV-P
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